Oc­cu­pancy down, but price is at­trac­tive

Finweek English Edition - - HOUSE VIEW - *The writer owns shares in City Lodge. By Si­mon Brown

I have been a long-time holder of this stock and while it never sets the world alight, it is a nice, steady in­vest­ment, al­though to a de­gree its growth is tied to the lo­cal econ­omy as most of its guests are busi­ness peo­ple. With the econ­omy un­der pres­sure, the com­pany saw oc­cu­pancy lev­els drop to 66%. This hit head­line earn­ings per share (HEPS) growth, which was at only 2% and lever­age worked against the com­pany.

Lever­age is the largely fixed cost with vari­able rev­enue. A drop in oc­cu­pancy hence sees a larger drop in profit with the in­verse be­ing true; oc­cu­pancy back at 70% will push prof­its much higher.

The move into the rest of Africa is start­ing to pay off well, while the over­sup­ply of ho­tel rooms in the wake of the 2010 World Cup has worked its way out of the sys­tem.

I like the stock, and the price at un­der R150 is at­trac­tive, even though it will likely only be in 2018 that oc­cu­pancy rates start to rise again strongly.

With the econ­omy un­der pres­sure, the com­pany saw 66%.oc­cu­pancy lev­els drop to

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